UPDATE 1-Lehman may raise $3-4 billion capital - WSJ

June 3 (Reuters) - Lehman Brothers Holdings Inc LEH.N may raise $3 billion to $4 billion in fresh capital, suggesting the investment bank could post its first quarterly loss since going public, the Wall Street Journal said on Tuesday, citing sources familiar with the matter.

New capital may be raised by issuing common shares, diluting existing shareholders, and would probably be announced in conjunction with its quarterly results due the week of June 16, the newspaper said.

The news sparked selling in the dollar and weighed on Asian stocks, while boosting demand for safe-haven government bonds such as U.S. Treasuries.

The MSCI index of shares in the Asia-Pacific region outside Japan .MIAPJ0000PUS extended early losses to 1.8 percent.

Lehman was hurt by hedges used to offset losses in real estate and other securities in the second quarter, and losses from both write-downs on assets and ineffective hedges are likely to top $2 billion, the newspaper said.

Several analysts expect the bank to post a loss in the second quarter, according to Reuters Estimates. Lehman is the smallest of Wall Street's four major investment banks, following the purchase of Bear Stearns Cos by JPMorgan Chase & Co (JPM.N).

Lehman did not immediately return calls for comment.

Standard & Poor's, one of the three main credit ratings agencies, cut debt ratings on Monday on Lehman, Merrill Lynch MER.N and Morgan Stanley (MS.N), citing a weakening profit outlook for the beleaguered sector.

Financial institutions globally have already written down over $350 billion in losses related to risky U.S. subprime mortgages and S&P said "write-downs may continue to depress earnings." [ID:nN02286902]

"The market is very cautious about developments with troubled financial firms," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJTrust Bank in Japan.

Lehman shares closed down 8.1 percent on Monday at $33.83. The shares have fallen by nearly a half this year. (Reporting by Varsha Tickoo and Tenzin Pema in Bangalore) (Additional reporting by Satomi Noguchi in TOKYO) (Editing by Kim Coghill)